Elizabeth Beverly, Etc. v. John W. MacY Jr., Elizabeth Beverly, Etc. v. National Flood Insurers Association

VANCE, Circuit Judge,

dissenting:

The narrow issues before the court today are whether the National Flood Insurers Association (NFIA) breached a duty it owed to the Hartford Insurance Group (Hartford) under the service contract between NFIA and Hartford and, if so, whether NFIA and Hartford by contracting intended to directly benefit persons such as Mrs. Beverly making her a third party beneficiary under the contract. The service contract is essentially a subcontract in which Hartford has agreed to assume some of NFIA’s policyholder servicing duties in return for a fee. Incorporated into the contract for specific purposes are various manuals authored by NFIA. Because Mrs. Beverly has failed to allege action or inaction on the part of NFIA or Hartford which amounts to a breach of a promise contained within the service contract, no cause of action has arisen under that contract.

NFIA’s duty to notify policyholders forty-five days prior to the expiration of the policy and notify policyholders and their agents should the policy lapse is an independent duty owed by NFIA to others. It is certainly not a duty arising from the service contract, and no third party claims for breach of that duty can fairly be grounded on that contract. The district court, therefore, properly dismissed the complaint. 1

The principal bases of appellants’ claim to third party beneficiary status are sections four and seven of the service contract be *944 tween NFIA and Hartford. Section four requires Hartford to “Follow procedures, adhere to the time standards and utilize the forms set forth in the Servicing Company Manual and the Flood Insurance Manual .... ” Appellant relies on the final sentence of this section: “Said manuals are incorporated herein, made a part hereof, and are attached as attachments I and II.” This incorporation, she claims, entitles her to rely on language in the Flood Insurance Manual, made a part of the contract by section four, which recites that “[i]n order to avoid a lapse of the policy because the premium for the succeeding policy term was not paid prior to expiration of the then current term, an expiration or premium notice will be issued to the payor at least 45 days prior to each annual expiration date.”

Documents incorporated into a contract by reference are made a part of that contract only for the purposes specified. Guerini Stone Co. v. P. J. Carlin Construction Co., 240 U.S. 264, 277 , 36 S.Ct. 300, 306 , 60 L.Ed. 636 (1916); McDonald v. Hamilton Electric Inc., 666 F.2d 509 , 513 n. 6 (11th Cir.1982); Ralston Purina Co. v. Barge Juneau and Gulf Caribbean Marine Lines, Inc., 619 F.2d 374, 375-76 (5th Cir.1980); Hill & Combs v. First National Bank, 139 F.2d 740, 742 (5th Cir.1944). Section four of the service contract merely creates a duty of Hartford to comply with the applicable procedures and time standards contained in the incorporated manuals and also to use the forms therein. It is clear that the manual provisions relied upon by appellants mention a duty of NFIA which is separate from and independent of its contract with Hartford and not incorporated into its agreement with Hartford by section four of the service agreement. The district court found and the parties agree that it was the responsibility of NFIA or another subcontractor, Bradford Computer & Systems, Inc., to send renewal notices and notification of failure to renew to the policyholder and agent. This was not a duty of Hartford under the service contract nor was it a duty owed to Hartford or to anyone else by NFIA under the service contract.

As additional evidence of a duty of NFIA under this contract to notify its policyholders, appellant also relies on the Guidelines incorporated into the contract by section seven of the service contract. The majority opinion emphasizes this section because it is the only one on which appellant relies where the incorporating language states a duty owed by NFIA as well as Hartford. In this section NFIA and Hartford agree to comply with

the Standards and Guidelines of Minimum and Maximum performance (the Guidelines) ... for the services to be performed in this Agreement. Said Guidelines are attached hereto and incorporated herein by reference.

(emphasis added). The language in the Guidelines seen by appellant as imposing a duty of notification on NFIA is not a part of any of the standards or guidelines which make up the bulk of the document. It is best described as a parenthetical statement or an aside following a group of standards which serves as an introduction to a processing chart. The chart describes the method for manual renewal of a policy which occasionally must be performed by Hartford.

The vast majority of flood insurance policies are renewed by means of NFIA’s computerized direct billing system.

Occasionally, however, a policy may have to be manually renewed by means of an application submitted by the agent to the servicing company.

For those few instances when a manual renewal may occur, a processing chart and time table is presented below.

Guidelines at 21. The single sentence in this introductory remark does not make NFIA’s independent obligation to notify its policyholders of renewal and lapse a “service to be performed” under the service agreement.

Except for the instances summarized above, there is no mention in the service contract of any obligation of NFIA to send renewal notices to policyholders or to inform them when their policies lapse. NFIA may have an obligation to its policyholders *945 apart from the service contract with Hartford. The meager references to this obligation in lengthy documents incorporated by reference into the service contract do not make the obligation one owed to Hartford or one owed anyone by virtue of the incorporation into the Hartford service contract. It is clear that the manuals and guidelines were incorporated in the service contract merely to describe the procedures and standards with which the parties must comply to perform their mutual obligations under the contract. Only a tortured reading of sections four and seven of the service contract and the materials incorporated therein would make NFIA’s breach of its independent obligations to its policyholders a breach of its contractual obligations to Hartford. The parties had no intention to incorporate the extraneous materials into the service contract for any purpose other than those explained above. There is absolutely no indication that either party intended to confer a benefit on any third person or create a right in a third person based solely on language found in incorporated extraneous materials where the language relied upon is completely irrelevant to the purpose for which the materials were incorporated. See Ross v. Imperial Construction Co., 572 F.2d 518 (5th Cir.1978); Restatement (Second) of Contracts § 302 & comment d (1981); Restatement of Contracts §§ 133(l)(a), 140 (1932).

Believing that appellants have alleged no breach of the service contract between NFIA and Hartford and that the district court’s dismissal of the action was appropriate I respectfully dissent from the opinion of the court.

. Appellants’ strained contract construction and pleading is an apparent attempt to avoid unfavorable circuit precedent which finds no private right of action in similar situations for breach of duty by a government agency or its contractor for violation of its statutory duties. See Till v. Unifirst Fed. Sav. & Loan Ass’n, 653 F.2d 152, 155-56, 158-61 (5th Cir.1981); Roberts v. Cameron-Brown Co., 556 F.2d 356, 360-62 (5th Cir.1977). These decisions are binding as precedent in the eleventh circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir.1981) (en banc).